Cryptocurrency “mining” — the ongoing calculations and redundant data storage associated with blockchain — is incredibly costly. One needs plenty of uninterrupted power to keep the servers running and cool. There are physical property concerns, like security, maintenance, and taxes. There’s also the baggage that comes from having a crypto server farm.
No one knows this better than Digihost, a Canadian organization that self-describes as a blockchain technology company based in the US.
The Basics
- Digihost has agreements with North Tonawanda (NT), a small city near Niagara Falls, to rededicate a natural gas-burning power plant for crypto mining.
- Fortistar currently owns the plant.
- Back in March 2021, Digihost announced the purchase of the power plant at the price of $3.5 million and $750,000 of company stock.
- And as of September 8, 2021, it looks like Digihost will be able to move forward with its plan.
And the locals are pissed off!
But it’s not only residents expressing concerns (which mostly circle around environmental concerns and emissions). Environmental organizations like Earthjustice and the Sierra Club have made their opinions known, too.
So today, we’re going to explore the costs and PR nightmares of this endeavor. If you’re daydreaming about server farms — particularly since China kicked out half the world’s crypto miners in June — this may be the reality check you need. Or, perhaps it will provide you with the insight to launch a crypto server farm somewhere a bit more welcoming.
Why Do NT Residents Hate the Idea of a Crypto Server Farm?
A Little Background
North Tonawanda is nestled at the intersection where the mighty Niagara River meets the historic Erie Canal. After the Industrial Revolution, it was a lumber and steel town. Major factories included the Wurlitzer plant, which manufactured organs and jukeboxes (you remember the Happy Days TV show intro jukebox was a Wurlitzer), and the Herschell Carrousel factory.
The area became an economic “rust belt” in the 1980s, but only after the Love Canal Tragedy struck hundreds of families in the late 1970s.
The Love Canal Tragedy
You might be too young to remember Love Canal. But it’s a traumatic memory for most Western New Yorkers (maybe some of you remember the “Big Dig” in Boston, not the same but corruption was at the center of it).
Love Canal is an aborted canal project about four miles south of Niagara Falls and only a few miles from NT. It was also the name of a 15-acre working-class community of about 800 single-family homes built adjacent to the canal.
In the 1940s, Hooker Chemical — which later became Occidental — began using the partially dug canal as a chemical waste dump. They buried drums of hazardous chemicals, and they did so with complete government sanction. That’s because the US Army had once used that same property as a dumpsite, too.
- By the end of Hooker Chemical’s dumping, the canal’s content included 21,000 tons (42,000,000 lbs) of toxic chemicals, per Dr. Kleiman of Geneseo University.
- Those chemicals include known carcinogens like chlorobenzene.
- Hooker Chemical proceeded to cap the landfill in clay before selling that land to the Niagara Falls School Board for $1.00. You read that right, one dollar.
- Forward-thinking execs at Hooker attempted to absolve the organization of future liability by including a warning in the property deed.
Things Started to Go Awry in the Late 1970s
That’s when families of Love Canal began to experience a series of inexplicable illnesses like asthma, epilepsy, and migraines. Abnormally high rates of congenital disabilities and miscarriages caused grassroots organizations and newspapers to research the problem.
Ultimately, they learned that a few wet winters had raised the local water table. The drums were leaking, and toxic chemicals were percolating up. Hazardous chemicals leached into local basements, yards, and the playground at the elementary school.
Sadly, NY state and federal officials quickly dismissed the activists — mostly working-class women — as a flock of hysterical housewives. It wasn’t until 1978 that President Jimmy Carter declared a state of emergency.
- The federal government paid to relocate 239 Love Canal families.
- About 700 families were left waiting, even though the toxicity of local ground and water was known to be highly unhealthy.
- The government finally moved those families in 1981, during the second state of emergency.
Ultimately, Love Canal became a symbol of environmental disaster. On the legislative side, it birthed the 1980 Comprehensive Environmental Response, Compensation, and Liability Act, aka CERCLA or “Superfund.”
But the real tragedy of Love Canal was hundreds of miscarriages, children born premature and unwell, and those born with significant congenital disabilities. Since it happened in the 1970s, we’re still learning about the mortality of conditions picked up in Love Canal. So you see why North Tonawandans are reluctant to embrace a massive crypto server farm.
Can You Blame Them?
Love Canal still feels fresh in the minds of NT residents, who live only six miles away from the hazardous dumpsite. They are concerned not only with the environment itself but also with their health. The notion that a foreign-owned crypto server farm will burn enormous amounts of domestic fossil fuels and pollute their yards with emissions is well-founded. And they don’t trust the state or federal governments to have their best interests at heart.
Energy Costs to Consider
Beyond the environmental and health issues, some locals are concerned about natural gas prices.
Remember, Western New York is home to some wild winter weather. In 1977, the area was pounded with 150 inches of snowfall — 12 feet or drifting as high as 20 feet in some neighborhoods. More recently, in 2014, the “Snowvember” storm hit the neighboring towns with eight feet of snowfall in 48 hours. And with recent Natural Gas prices…what do you think is going to happen?
It’s a cold place where most homes and businesses receive their heat from natural gas. We all know how supply and demand work in economics, and we can understand that NT locals worry about their household heating costs when February temperatures drop to sub-zero.
Now that we understand the residents’ concerns, let’s consider the other costs of a crypto-mining operation. Because as of September 8, 2021, the NT City Council has approved the development. It looks like Digihost will be moving forward with its plans.
What’s in a Massive Crypto Server Farm?
Building a server farm for crypto-mining is a costly endeavor. First, you’ll need the right real estate. That means a code-compliant building or suite complete with updated electrical capabilities, a high-quality HVAC system, excellent insulation, and a new roof that’s guaranteed not to leak. Otherwise, your technology will always be at risk.
Next Comes the Tech and Climate Control
Server and software selection is a topic worthy of an entire article for another day. A good internet search will get you on your way. You’ll quickly learn that the sky is truly the limit when considering your initial hardware and software purchases. Expect to spend tens of thousands of dollars at minimum to see the smallest return. And if you want to make money quickly, you’ll be spending many millions.
Now that you’ve invested big bucks, you’ll need to maintain it.
We think this Maya HTT blog says it best: “Crypto farmers cram massive amounts of computing density into tiny spaces.” Those server banks will generate a lot of heat, so your layout will be a balancing act between computing muscle, hot air output, and cold air inflow.
- That’s probably a big reason why Digihost wants to mine crypto in chilly Western New York.
- And so far, there is no single room layout or best practice to help crypto server farms achieve that balance.
But we’d love to hear about your successful experiences.
All these energy costs lead to an immense carbon footprint. We imagine that’s part of the reason Digihost would rather launch this endeavor in the US rather than Canada. But is that the case?
The Gist of Canadian Data Regulations
Before we get into data residency, let’s think about data stored in a “cloud.”
The term “public cloud” refers to storing information and running applications in data centers around the globe, usually provided by a third party like Google Cloud Platform or Amazon Web Services. We call it a cloud because it feels like we can open a website console and magically access services and instant deployment to users everywhere.
But in reality, there is no cloud. The data stays on a real server somewhere. To Canadians, the location of that server and the type of data stored there matters. Most Canadian data regulations revolve around consumer privacy; the gist is that data collected and stored about Canadians can only be used for its original purpose.
Organizations might track and sell the information. But, for example, they can’t use information about someone’s healthcare or medical conditions for marketing.
Does Crypto Fall Under This Umbrella?
This is where things get fuzzy. Blockchain ledgers aren’t exactly consumer information, like the information Facebook is storing about US users. But there are identifiable transactions to consider.
The beauty of crypto is that it’s largely unregulated, but we feel that it won’t last long. We bet Digihost is thinking the same way.
Not that data is exceptionally safe in the US — and we’re not even thinking about dangerous hackers or malicious attacks! Consider the USA Patriot Act. This legislation allows the US government to access and surveil any data stored in the country. It’s a far cry from Canada’s information protection act PIPEDA, which prevents data sharing for surveyance purposes.
So it must be the cool climate and in-house electricity production that attracted Digihost to North Tonawanda for its crypto server farm. For the shell-shocked residents who remember Love Canal vividly, we understand your concern.
Related Reading & Resources About Crypto Server Farm Projects:
Buffalonews.com: Canadian Cryptocurrency Company Plans to Buy North Tonawanda Power Plant
NYSDPS-DMM: Matter Master: 21-00856 / 21-M-0238
Archive.epa.gov: The Love Canal Tragedy
Techrepublic.com: Building Out a Rack-Based Server Farm
2020 Niagara County Comprehensive Economic Development Strategy
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